Is Big Auto Stuck In A Dead End? Is Change REALLY Coming?

WILL BIG AUTO GO THE WAY OF BIG TOBACCO?

It’s an open secret that Big Auto’s electrification efforts are mainly for the benefit of government regulators and the media. Even as they announce impressive-sounding investments in technology and new plug-in models to be launched years down the road, they invest next to nothing in marketing their existing EVs, and their lobbyists work diligently behind the scenes to water down the regulations that are forcing them to build electrified models.

Nowhere is this hypocrisy more obvious than at the big auto industry trade shows, where the spotlights shine on ever-bigger and more powerful gas engines, and the booth bunnies pose with ever-more monstrous SUVs. The plug-in vehicles are there too, but most of them are off in a corner, except for a few spaceship-like “concept cars” that everyone can make fun of.

Enrique Dans, a Professor of Innovation at IE Business School, wrote a piece a year ago bemoaning this state of affairs. In “The automobile industry is stuck in a dead end,” Dans described his dismay after attending the North American International Auto Show (NAIAS) in Detroit and seeing how the industry’s idea of innovation continued to center on more horsepower and whizzier infotainment systems.

Strangely enough, no automaker was interested in paying for Professor Dans to attend this year’s NAIAS. However, as he writes in a recent Forbes article, a survey of media coverage of the show was enough to convince him that little has changed. Dans notes a major contrast between CES, where innovations having to do with automobile user interfaces and autonomy were on display, and NAIAS, where exhibitors “still seem obsessed with selling gas-guzzling cars, all of which are futuristic-looking rather than looking to the future.”

Above: Sierra Club just released a new video and statement accusing Ford of double-talk, hypocrisy, and “greenwashing” as they lobby to roll back clean car standards (Twitter: @SierraClub via Mother Jones)

Electric and autonomous tech was featured at a satellite exhibition called Automobili-D, but Dans notes that this was kept separate from the main event, presumably for fear that the innovations on display there might infect healthy red-blooded truck buyers.

On the other hand, as even the bitter Mr. Dans acknowledges, change is in the air. The monster trucks may still be hogging the stage at the trade shows, but it’s impossible to argue that nothing has changed from a year ago. The auto industry understands that it is behind the electric curve, and plans to invest a collective $90 billion to catch up, according to Reuters. Ford recently announced that it would increase its investment in electrification to $11 billion between now and 2022 (for comparison purposes, Reuters said Ford’s total R&D budget was $7.3 billion in 2016). Similar strategies are taking shape at GM, Volkswagen, and Daimler.

The industry is changing, but as Dans notes, it’s mostly reactive change, not proactive change. The legacy automakers are reacting to trends that are being set by others, notably Tesla, which has demonstrated that mainstream consumers really do want electric vehicles; and China, which aims to leverage electrification to make its auto industry a global player.

Big Auto clings to hydrogen fuel cells

Like an aging uncle trying to look like a hipster, Big Auto is desperately trying to give the impression that it is abreast of the latest technology, but it continues to piddle around with dead ends like plug-in hybrids and hydrogen fuel cells, while setting target dates for electrification that are decades in the future. As Dans puts it, “the automobile industry is being dragged screaming and kicking into change.” It’s too soon to predict that any of the legacy automakers will go the way of a Kodak or a Blockbuster, but in terms of the industry’s reputation, Big Auto might just end up going the way of Big Tobacco.

We might as well quit calling them Big Auto, it’s more like Trucks, SUV’s, nowadays. It’s really what they want you to buy because it’s the one place they make money, which is really what they are all about.

Detroit was like a mausoleum this year. Dead, dead, dead, just like the legacy companies that sponsor it and no amount of resuscitation will do any good.

Tesla has success because it invested in not only the vehicles, but also the batteries powering them and the infrastructure recharging them. Most automakers just want to make the cars, and leave batteries and charging to others. It’s a financially safer move because they have less at risk if the whole thing fails. But it also means they have less to gain if the transition to electric vehicles ends up overtaking gasoline as the primary power source of vehicles on the road.

Tesla has to build its infrastructure from the ground up. They haven’t had 100 years to do it, like the Big 3. These losses are to create this infrastructure in a very short amount of time, comparatively.

All the while with these losses, they’ve managed to make a market cap that rivals the Big 3. How? Because investors know that you must build the infrastructure to compete.

Market cap means nothing. It is based on fantasy and hype, nothing else. There are no fundamentals at all supporting a $350 stock price. Bitcoin also has a huge market cap yet it has absolutely no value at all.

A small amount of the losses has to do with infrastructure. Most of it doesn’t.

You’re trying to sound like you know what your talking about.
But, we on this web site look at the balance sheet and see the GEOMETRIC Growth in Tesla Assets: Plant and Equipment.
Look at their growth over the last 5 years.

Why don’t you go do that first, before you post.
And secondly, start verifying what you hear in the financial press.
Actually, you should have been doing that since the birth of Fox Lies.
It will make you look less like a fool.

You’re a fuk1ng idiot.
So when I spend $97k which is the amount I recieved in profits and reinvested it by purchasing more 30ghz spectrum analyzers and sweep oscillators then spent $10k more on parts that got me a price 25% less than normal that means i’m “loosing money hand over foot” if I file this as a loss?
Learn the phrase “reinvest”.

WTF is you point?
I have executed such. Reinvested to increase test and measurement steps resulting in higher output.
You don’t believe having more equipment doesn’t increase output?
God D@mn how dumb are you?

I don’t think you understand the difference between cap-ex and inventory. If you’ve actually been filing all your extra “oscillators” as cap-ex, you really need a better accountant because you’re counting your working capital as a loss on your taxes.

A company GM’s size makes twice as many vehicles Tesla does yearly ever week. GM makes about 200k vehicles a week. So yes a 20% growth by GM would be about 20 Tesla sized companies worth of cars. The big guys are on very different scales.

“Big Auto” can adjust (and is adjusting) to a future with electric drivetrains. Some automakers will be hurting for their delay tactics (ford, fiat, etc) but others such as GM and Nissan have been doing this since 2010.

Eventually ‘big gas/petrol/diesel’ or whatever will go the way of “big tobacco”. But it is going to take a good long while.

The change to EVs will only be slow if there is no break-thru in batteries. If any cheap solid state batteries start being manufactured in the next five years then all bets are off on how fast the change can occur.

That of-course is something that is impossible to predict. But as cameras, smart phones, and TVs have shown the market can change in less than ten years.

Notice I did not include computers as that they took almost 20 years to move into most homes.

The change over would be pretty fast. What about an EV is difficult to make. It’s not the electric motor. EV’s have less parts than their ICE counterparts. GM showed they could build an EV much quicker than Tesla and the biggest complaint about it is the front seat comfort. How quickly do you think they could stick a 200hp EV drive train below any vehicle they make worldwide? I would say less than 2 years. ICE manufactures switching to EV’s will be easy. The problem comes down to timing.

All that is required is to LET stupid car makers fail and suffer the consequences of their decisions. The market will sort it out. Using OUR TAX MONEY to bail out the losers is the ultimate crappy government policy.

Massive layoffs would crash the economy far faster than the money needed to keep these companies afloat. Remember, it’s not just the employees of the Big 3 that would die off, it’s all their suppliers. It’s a huge chunk of our economy that we just cannot let die. (Unfortunately.)

If it’s the natural progression then let them fail. How stupid is it to keep an industry afloat by spending money ti keep it alive just to save jobs. If the jobs are gone then they’re gone, plain and simple. Adapt or die.

As much as I didn’t initially like the GM buyout, it was effective and saved money in the long run. The company is doing very well now and has far more than paid back in payroll and corporate taxes any Government support.

Correct. GM was headed for bankruptcy, which is not the end of the company, but just a restructure of debt with the creditors of the company. It went through bankruptcy anyways. The purpose of the government seizure was to make sure Obama’s union friends got a good deal at the expense of stockholders.

I suspect EV adoption will be a truncated S curve – as ICE diehards stand their ground. The truck owners I know are not at all fans of EVs, and are likely to continue to stand firm with ICE vehicles for many years.

We could end up with rapid ‘S curve’ EV adoption that stops at maybe 50%, and a divided vehicle market afterwards. And as EV adoption does progress, the oil/gas supply-demand curve will favor lower gasoline prices – which will encourage ICE owners to stand pat.

Your truck buddies will inevitably fall just as the sedan/car crowd did. Once the first Workhorse W15 or Tesla pickup drives up they’ll be forced to question why they continue dropping $50-60 every week on gasoline.

Even if new EV trucks are awesome, some may not consider them macho enough unless they have loud engines and large bad-ass chrome tailpipes. The topper will be the ‘Calvin peeing on a Tesla logo’ decal.

ICE pickups will get crushed in rock crawling and boat towing. You can drive around making noise and blowing smoke but don’t dare hook up a boat trailer and pull up along an EV vehicle pulling the same.

Then where will be a bifurcated society, where Truck owners pay more for gas. As the market shrinks the production will shrink, and they will continue to lose money on expensive gas, and become poorer.
— Economic Darwinism.

“We could end up with rapid ‘S curve’ EV adoption that stops at maybe 50%, and a divided vehicle market afterwards.”

That wouldn’t be a “truncated” S-curve, it would merely be a shortened one; one that had an upper limit lower than is usual in a disruptive tech revolution.

But that won’t happen. The current opposition to EVs will mostly evaporate as they become commonplace and as most car buyers come to see them as better than gasmobiles. There will come a cultural shift in favor of EVs, just as once there was a cultural shift away from horses to motorcars.

Of course there, will be a small percentage of die-hards, just as there are in every tech revolution. There are still people using film cameras and people who still have land line telephones in their homes. That’s why the “S-curve” doesn’t go to 100%; it tops out at something like 90-95%.

“but it continues to piddle around with dead ends like plug-in hybrids”

What a joke statement. There is huge savings in fossil fuel consumption with PHEVs. We fill up our Cmax Energi 1x per month. Our last vehicle had to be filled with petrol weekly. That equates to aprox 45 gal per month for one car.

That is but one of Ford’s “electrified” vehicles. The Energi vehicles (which, by the way, are grossly outsold by even their mild hybrid cousins) are but a tiny, tiny speck of Ford’s overall vehicle sales.

EVANNEX give it a break. Until you can build $16k 300 mile EV’s that don’t need on tax credits they will continue to be fringe sales. People keep talking about the average price of a new car sale is $33k, but the ignore the median cost is closer to $20k. The average buyer isn’t looking at EV’s at this time.

Exactly! Big Auto is not interested in the EV market because it’s a tiny fringe market. It’s not possible at the moment to make EVs at a price point where they will sell like ICEs for the same profit level, therefore the interest of big auto is limited to researching the technology and marketing strategies.

Tesla is valued like one of the big car manufacturers but in reality they are a tiny speck on the car market while at the same time losing money like there’s no tomorrow. Once technology matures and comes down in price Big Auto will make a huge push and start competing for real. With the huge resources Big Auto have in terms of money and production facilities, Tesla is going to have a really difficult time keeping up.

I said the median price is around 20k which fits pretty well in your price range. Also a $16k car isn’t sold for $16k with options. Why do you think people pay $18k – $23k for cars – options. It’s the same reason I can’t get a $35k Tesla.

Why should big auto be doing anything different? The top 3 selling vehicles in the US are always pickup trucks. Ford would be stupid to not make truck and SUV buyers their top priority when they’re selling nearly 1 million F-150s alone every year.

Contrary to popular belief on EV enthusiast sites, the US mass market does not want EVs yet nor do they care about them. They want big trucks and SUVs. It’s not big auto forcing them on their customers. Big auto is making them because that’s what their customers want to buy.

The average car buyer couldn’t care less about how their vehicle impacts the environment. The only way things will change will be when (i) the government forces it or (ii) EV trucks/suvs exist that are more capable and cheaper than ICE versions. When that day happens, big auto will be there to take over. Tesla will, at best, only be there to serve their niche market… and that’s if they ever figure out how to not lose obscene amounts of money every quarter.

People want EV, but not 35k$ economic electric hatchback. If Tesla did something right, is to show how superior EV can be compared to ICE.
New technology has a price and it should be implemented on high end vehicles first, not on economy cars.
The market will shift when luxury car maker will start to make proper EV while still keeping a good margin of profit on them.
At the moment, no one is really interested to loose money making economic EV and no one wants to loose sales of very profitable ICE luxurious SUV and trucks. Its a dead end that Tesla might be disturbing by taking away sales from luxury car maker.
Every one knows the magic recipe to sell EV, make a luxurious full size SUV or pick-up truck, put a nice 4×4 plug-in or electric drive train in it and sell it slightly more than the ICE version. It would sell like hotcakes and still be profitable. If only car maker actually wanted to sell electric cars.

“Contrary to popular belief on EV enthusiast sites, the US mass market does not want EVs yet nor do they care about them.” Well, thats only true unless you, as a truck driver, are not smoked by a car made by a niche company, like Tesla, on an Interstate 🙂

Lets be honest, more and more people are realizing the benefits of EV’s. And larger batteries, with the same weight, with shorter charging times and less cost, will for sure dramatically improve EV sales. We can see this happening right now, it’s not SciFi…

Big auto is not mad & all this takes a lot of time.
1/ it takes years from concept to production.
2/ battery technology is improving all the time, it is problematic as per a cell production investment point of view and EV depreciation.
3/ raw materials logistics uncertainty
4/ only a very small fringe market so far
5/ the track record of EV sale profitability is not good (euphemism).
6/ Current EVs charging time stands in the way of mass adoption.

Big auto is not mad & all this takes a lot of time.
1/ it takes years from concept to production.
True

2/ battery technology is improving all the time, it is problematic as per a cell production investment point of view and EV depreciation.
I am optimistic that “battery breakthrough” in terms of solid state L-ion is imminent. Although still not really cheap, this will make EVs much more affordable.

3/ raw materials logistics uncertainty
Not really, plenty of raw material, just need to develop a more mature supply line.

4/ only a very small fringe market so far
And growing rapidly, watch it change from 1% this year to 2% next and 4% in 2020.

5/ the track record of EV sale profitability is not good (euphemism).
Agreed. But that will change.

6/ Current EVs charging time stands in the way of mass adoption.
For almost all new EV buyers this is a big deal, but after you have owned one and realize 95% of your charging is overnight it becomes a non-issue.

The big boys are hedging their bets. Most will accept that petroleum’s days are numbered (even if they would like to use scientific notation to quantify it), and realize that they need to at least check out alternatives. The huge leap we’ve seen is that ordinary consumers can now take part in this process; but the big show still lies in the future (assuming there isn’t another huge leap). Right now, they’re all looking at each other, raising their bets slowly, waiting for one of them to flinch.

Well, i believe the story is too pesimistic. I mean, the Big Auto is really leaning towards electric powertrains. You have Nissan, Renault, Chevy, BMW that are already selling EV’s. In the near future (1-2 years) others will come for sure (Audi, Opel, VW, Mercedes) as they already have announced serial production models. Another example is Daimler, which (if I’m not wrong) has invested already 1 billion in two battery manufaturing plants. Probably Big Auto is just seating and waiting for advances in battery technology. Let’s not forget that ICE’s still have much greater autonomy and much faster “charging” times than EV’s, all this on lower price. Only advances in battery technology and recharging time will explode the sales of the EV’s.

EV’s are getting better and more economical, but then so are ICE’s, hybrids, and Hydrogen vehicles.

Hydrogen vehicles just have too much head winds in front of them to ever be popular nationwide – although government mandates may make them more popular than they’d otherwise naturally be.

Electrics are on a growth progression but then some utilities, like my own, want an 11% rate increase.

In the Utility I’m forced to suffer along with, British National Grid – they don’t deserve it. Instead of fixing minor problems, they totally REINVENT the wheel by doing unbelievably costly ‘voltage migration’ programs, which are basically like rebuilding the grid from scratch – or even more costly since they have to keep the lights on in the meantime.

And all this in a mature, built-up area where the long term electrical load is DECREASING, due to mandated CFL’s and LED’s, as well as more efficient heating, cooling, and appliances. – as well as some homeowners basically abandoning them (during peak usage times anyway, such as myself, by providing my own solar or wind power – or in the near future, by Micro CHP systems that will FULLY utilize any fossil fuels – or some that product MORE heat than the fossil fuel contains by using the heat to run a heat pump and extract the remainder from outside the home).

So every undeserved rate increase makes EV’s that much less competitive with other offerings.

The old guard is indeed being dragged along… this is the second or third time they have tried to end the now inevitable move to EVs. They crushed it out last time and sold off the batteries.
This time they are whining as Renault/Nissan/Mitsubishi Alliance and Tesla are poised to eat their lunch. I hope Ford goes first when Tesla or Nissan finally rolls out an electric full size pickup that works more reliably than an F150 and uses no gas. Then you will see the other manufacturers completely awake and full believers.

ACCOUNTING 101 INTRODUCTION REGARDING “LOSSES BECAUSE OF FAST GROWTH” STORY

Reading again a lot of silliness in this respect in comments above, as I am an accountant I will share some of my knowledge. If better accountants than me around please don’t hesitate to correct me (also English not being my first language) .

True in case of large R&D expenses. It is indeed difficult for a fast growing company to know in anticipation which R&D will be successful and generate incomes in the future. Thus typically R&D efforts are all passed to expenses.

True also in case of employees count. It is rather normal for a fast growing company to anticipate its human resources needs. Therefor the employees head count is often larger than comparable but slower growing companies.

Regarding infrastructure (building)/tooling/equipment, referred to as “Capex” (capital expenditure). Those are all the items that have a meaningful useful life for the company (for Tesla that would be tooling/factory/super chargers, showrooms, service centers etc).

Does those “investments” generate losses ?

Yes but not directly. They are allocated to the assets of the company (no impact on expenses). Thereafter they are amortized according to their useful life (this impacts the expenses). So let’s imagine Tesla investing into Kuka robots for its Model 3 assembly line. Total purchase price: USD 1 billion (thus one billion goes to Tesla Motors Inc. assets under line “kuka ribots for Model 3 assembly line). At the end of 2017, a first amortization is booked against the cost (USD 1 billion) of the Kuka robots in the balance sheet. Tesla head of manufacturing thinks that those robots could be used for production for 5 years. In that situation amortization corresponds to 20% (1/5) of total value of the Kuka robots. That is USD 200 millions that goes to Tesla Motors Inc. profit and loss report (as an expense). As a consequence, the remaining value of those robots in Tesla’s balance sheet is USD 800 millions now, in 2018, another USD 200 millions are expensed as amortization etc.. Same for super chargers, for buildings (useful life of a building is long so probably minimal impact on Tesla’s profit and loss report).

My take regarding the USD 1.9 billion loss posted by Tesla for 2017:

For reasons exposed above therer is of course a large part of this loss that is generated by Tesla’s fast growth. Another part is not generated by fast growth but arguably necessary for securing client loyalty (let’s call those “land grabbing losses”). Indeed when a Tesla is taken on a flatbed to a service center free of charge, it is a bit like offering flowers to your new girlfriend every week. Nice to secure your boyfriend position but probably hardly sustainable in the long run. Then there likely are losses due to lack of manufacturing experience (repairs under warranty) and many other aspects pertaining to a young company making mistakes out of lack of experience and poor location choices (if no one except Tesla is making cars in California there is of course a reason to it).

“BIG TABACCO” didn’t die, they just moved to third world countries where education is lower and government is more corrupt. (Which is hard to beat America right now in the corruption department with Komrad trumpf in office, but that’s another issue).

Funny story: I picked up a stranded gasmobile pickup driver that ran out of gas with my BEV today and dropped him off at a gas station. I commented that I loved my Spark EV since it has quick acceleration and is “full” every morning. Even he knows that ICE is a dead end as he commented that he knew countries were planning bans.

This article is such BS. First off, it’s obvious the author doesn’t know a thing about Big Tobacco as a business. Check out what’s happened to Altria, Philip Morris International, and British American Tobacco in terms of stock price and profits over the long term. If Big Auto had those results, they’d be dancing in the streets in Detroit. Also, given EVANNEX’s obsession with Tesla’s stock price and market cap relative to someone like Ford, I find it odd no one knows this there.

The premise that Big Auto as a whole is sitting on it’s laurels and the only savior for us all is Tesla is patently false. Unfortunately, all the automakers have a duty to their shareholders to be profitable, and the fact is that they still haven’t solved profitable EVs yet. Even if we assume that some of the BEVs out there are profitable (which is probably true depending on what specifically is meant by profit), they still cover relatively few market segments.

Finally, I find that “EV purists” such as the author can be as big an enemy of EV adoption as Big Oil. The idea that PHEVs are a joke and not worth making is a textbook example of letting perfect be the enemy of good. The amount of fuel saved by a PHEV that is plugged in every night can be tremendous, especially given that it represents the first XX miles of the day everyday. As it stands, charging infrastructure is just not there in a way that gives true go anywhere capability. PHEVs have this as a tank of gas can be found just about anywhere and filled in a few minutes. For most people, anything less is a compromise that they are not yet ready to accept.

Agreed for the most part. It’s hard to see anything better than hybrids satisfying the bulk of the country’s needs for the next decade or so. And the oil savings are definitely significant enough to have a real impact.

There will definitely be many pockets of high BEV adoption in places where it makes sense and infrastructure develops, but fundamentally North America is a rural environment dependent on long distance driving, often in cold weather.

Having said that, Tesla will survive and thrive. But no matter how fast it grows, it’s not going to displace all the companies that sell 17+ million vehicles a year in a competitive market.

“…’EV purists’ such as the author can be as big an enemy of EV adoption as Big Oil. The idea that PHEVs are a joke and not worth making is a textbook example of letting perfect be the enemy of good. The amount of fuel saved by a PHEV that is plugged in every night can be tremendous…”

Bravo! Well said, sir.

It is indeed counter-productive, and sad, to see EV “purists” attacking PHEVs as “not real EVs” and looking down on PHEV drivers as “not one of us”.

The EV revolution needs both BEVs and PHEVs, and that will be the reality until batteries improve quite a bit.

Over on the InsideEVs forum there is a lot of enthusiasm about the Honda Clarity PHEV, and a lot of discussion of that car. We EV enthusiasts should welcome them to our community, not reject them as “not pure enough”.

Hmmm, well, Evannex certainly is selling something! They’re selling aftermarket parts and gear for EVs. So naturally they write EV “cheerleader” articles like this one. Cheerleader articles that have a lot more to do with hopes and aspirations than the reality.

Now, the auto makers do see the handwriting on the wall. Most of them, at least, do realize that we are living at the end of the gasmobile era, and that EVs will soon overtake the market. That’s why they are now — finally — putting much effort and energy into developing compelling EVs.

But EV sales overtaking gasmobile sales is not going to happen tomorrow, nor next year. Unless and until somebody starts putting significantly better batteries into production, ones which enable a battery pack to be charge in 10 minutes or less, the year-on-year increase in EV sales is going to continue to increase at a rate which this EV enthusiast, at least, views as creeping up with excruciating slowness!

Federal & State legislation is part of the answer- as in some European nations where ‘gas’ is taxed highly & disincentives to ICE’s are working. Failing that, probably China will be the ‘catalyst that sparks the revolution’ when it begins to export massively.

Most people like to think that they alone make their ‘choice’ in products and that is what creates ‘demand’. Fact is that what your peers buy has a huge impact on what you buy. Your peer’s choices are predicated on what they are aware of through (mainly) TV advertising, and ads in magazines. Thus, the mass market will remain stuck on the LICE vehicles that continue to be flogged in the media. Having said that some change has come from personal testimonials of early adopters.
However, the new generation of buyers does not watch TV, hates commercials, and finds the whole personal vehicle experience too expensive and dirty.
So, Big Auto *will* go the way of Big Tobacco (in the developed world) because the next generation won’t take up the LICE dirty habit. EVs will continue as they will be a cheaper, cleaner, way for those that will choose personal ownership.